Finding Lost 401k Participants Proves to be a Difficult Task for Plan Sponsors
Finding lost 401k participants can be a difficult task for Plan Sponsors. Even in the midst of the Information Age finding lost 401k participants is more time-consuming, and frustrating than one would expect. Learn the choices and available services that a plan sponsor has when finding lost 401k participants.
Full Transcript
Greetings. This is Fred Barstein, with this week’s edition of Fred Talks for 401k TV. Today, I want to talk about the issue of terminated employees. Should you try to push them out of the plan, or keep them in the plan? I’m going to invoke a famous Clash song, which is called, Should I Stay or Should I Go?
Let’s first talk about the issue is, if an employee who was terminated, retired, separated for whatever reason, has less than 5,000, you can automatically get them out of the plan and put them into a Deemed IRA. But, if they have 5,000 or more, you cannot get them out of your 401k, or 403b plan.
Let’s talk about the issues of why you may want to keep and encourage people, terminated employees, to stay in the plan, leave their money, and issues why you might want to have them leave. The issues or the arguments for staying in the plan is there are more assets in the plan, which means you have more leverage with your providers, especially the record-keeper and the advisor. You’re going to get better quality advisors and record-keepers, and a higher level of service, if you have more assets in your plan, especially if you have higher account balances.
With some of the terminated employees, especially those that retired, or the older employees, they tend to have larger account balances, so you definitely want to encourage them, if you decide that you want to have people stay in the plan. It can also be a recruiting perk to say that even if you leave, we’ll help you, and you can leave your money in the plan, and there are ways that we will help you if you do.
There are other reasons about why you might want terminated employees to take their money and to leave, and encourage them to do that. Sometimes, dealing with terminated employees who left under difficult circumstances may not be the most pleasant thing for the company. Secondly, communicating with them, especially when they’re no longer employed, may be hard to … You’ve got to send notices out to them. They move, and you don’t know where they are, and it’s hard to locate them, so now, you’ve got a little bit of a liability. Defined benefit plans are experiencing that, and the DOL is really focused on missing participants. There are third parties, like PenChecks, that can help you to locate and find and communicate, and your record-keeper might be able to help you too. Then also, if that terminated employee passes, you have to deal with probate, or if they get a divorce, you’re dealing with family court. So, those are some of the reasons that you may not want to encourage people to stay in the plan.
But if you do want to encourage people, and you do have retired or terminated employees in your plan, especially if you have older ones, the one thing you may consider is when you’re creating your investment line-up, make sure that you have low-risk options, what are called capital preservation funds, things like fixed income. Because those older and retired employees are not going to want to take the risk, or as much risk in retirement as, for example, some of your younger employees. And you may even look at some of the evolving retirement income solutions that are starting to become available for people that want to leave the money in a plan.
So, there’s no right answer. It really depends on the culture of the company, and the relationship that you have with some of your terminated employees, but it is something that you want to consider. Talk to your advisor about ways that you, if you do want to encourage people, to stay. You can do that, or if you want to encourage people to leave, what are some of the legal and ethical ways that you can do that?
Thanks for watching Fred Talk and 401k TV. Stay tuned.
